The Week in Review for 02 July 2010

The RBI increased its two main short-term interest rates on Friday, both by 25 basis points. The repo rate, which is the rate at which the RBI lends to banks is now at 5.5%. The reverse repo, which is the rate at which the RBI borrows from banks, stands at 4%. Friday’s rate hikes came sooner than many expected. But the RBI said robust growth and increasing exports made it necessary to tighten monetary policy.

The rules of the game changed for banks this week, with the new base rate system coming into effect. India’s top banks scurried to announce their new minimum lending rates to comply with an RBI directive that came into effect on Thursday. State Bank of India set the tone, announcing a base rate of 7.5% on Tuesday. Other public sector banks like Punjab National Bank, Bank of Baroda and Union Bank of India pegged theirs at 8%.

Private lenders raised the stakes on Wednesday, offering base rates that meet or beat SBI’s. India’s biggest private bank, ICI CI, announced a rate of 7.5%, as did Axis Bank. HDFC Bank, meanwhile, went even lower at 7.25%. The new base rate system is a replacement for benchmark prime lending rates. And while private banks are offering lower base rates, analysts have told Mint the actual applicable rates of these banks may not be very different from their public sector counterparts.

Infosys turned 30 on Friday and to celebrate, it’s going to hand out presents. All 113,000 employees are will get five free shares along with one share for every year they’ve worked at Infosys. That’s a minimum pay out of about Rs160 crore. Back in 1994, Infosys offered its employees stock options that were stopped later. And in 2006 it paid out a bonus of one Rs126 crore.